Sunday, November 14, 2010

﻿Mexican Corn, Nafta and Hunger

Corn is the principal food of the Mexican diet, and the principal crop - planted on forty percent of arable land as of 1990. That year it was estimated that two to three million Mexicans grew corn, mostly on small parcels - 65% of five acres or less - of often poor quality land. Most farmers produce corn principally to feed their families, and yet about forty percent of Mexico's commercial corn is produced by them as well.

From 1983 to 1989, forty percent of all government agricultural support went to corn, much of it in the form of subsidizing the purchase of tortillas, the principal form in which Mexicans eat corn {1}. The rural poor, who do not buy ready-made tortillas, receive little benefit from this subsidy system.

The North American Free Trade Agreement (NAFTA) required Mexico to abandon price supports and import restrictions that fostered family farming and national food security. According to the theory of "comparative advantage" touted by NAFTA proponents, Mexico would be able to import basic grains more cheaply than it could produce them {2}. However, when world prices for basic grains jumped to record levels in the past year, the theory proved to be false {3}. The price increases, greatly exacerbated by the December 1994 Mexican peso devaluation, make imported corn more expensive than domestically grown corn. Prices are not expected to drop substantially before the year 2000 {4}.

As a result of policies undermining Mexican family farmers , Mexico produced 2.5 million tons less corn in 1995 than in 1994, and had to import 2.5 million tons of higher priced corn from the US. In 1996, Mexico demand for imported corn is expected to increase to four million tons. Because the US fulfills grain export commitments to Europe and Japan first, Mexico will face the threat of widespread hunger if the US cannot fulfill its commitments {5}.

The failures of "free" trade macro-economic and agricultural policy, combined with weather-related record price hikes in basic grains, have gravely imperiled Mexican food security. Transnational grain exporters and processors, such as Cargill and Archer Daniels Midland, will be the main beneficiaries of these policies.

Structural Adjustment: 1982 to 1994

Due to falling revenues from oil exports, a cash-short Mexican government declared a temporary moratorium on paying interest on its foreign debt, in August 1982. Mexican access to international capital markets closed immediately. As a condition of renegotiating loan terms, Mexico was forced to accept the conditions of the International Monetary Fund (IMF) and World Bank for restructuring the Mexican economy. These conditions, known in aggregate as a Structural Adjustment Program (SAP), include reducing public expenditures, eliminating subsidies, privatizing state enterprises, devaluing currencies, conforming to "free" trade policies, and removing barriers to foreign investment and ownership {6}.

SAP-mandated reductions in public support for peasant farmers changed Mexico from a nearly food self-sufficient nation in basic grains to a major food importer in just over a decade {7}. Agro-exports increased three percent annually from 1988 to 1993, while imports, largely from the US, increased 22% annually. At the same time, agricultural employment fell 4.5% annually among 25 million producers, about a third of all Mexicans. During this period, one in five rural Mexicans received no cash income and three of five received less than the minimum wage of $65 a month. According to some of Mexico's leading policy analysts, family farming underwent a process of "demodernization" to prepare for NAFTA {8}.

Post-NAFTA Corn Production and Import Policy

After NAFTA's approval in 1993, "demodernization" accelerated as financial and technical assistance went to agro-exporters. NAFTA's predicted benefits for Mexico disappeared on December 20 1994, when the peso - kept artificially high throughout the contentious NAFTA negotiations and the Mexican election - was sharply devalued. Following the devaluation, the costs of producing corn and other crops rose forty percent {9}. Agricultural loans, available at thirty percent interest prior to the peso crash, soared to 120% interest {10}.

According to orthodox economic theory, with Mexico's prices below the world market price because of the peso devaluation, domestic production for domestic markets should have been stimulated. Prices should have been allowed to rise to cover costs, and domestically produced grains would still have been cheaper than imported grains.

Nonetheless, in February 1995, the Mexican government was advised by the World Bank and IMF to continue to depress prices to reduce domestic grain production and to import supplies {11} largely from the US. In late summer 1995, the Mexican government followed that advice. To facilitate quicker and greater imports, it decided that the fifteen-year phase-out of protection against corn imports negotiated in NAFTA would be completed by 1998 {12}. As of October 31 1995, Mexican corn imports were up 71.9% over the same time period in 1994. In 1995, Mexico increased the tariff-free portion of those imports to 3.3. million tons, 28% more than the 2.5 million tariff-free tons agreed to in NAFTA {13}.

Because of high costs, government-depressed prices and other hostile government policies, many farmers have stopped producing corn and other basic grains. The Mexican Department of Agriculture reported a 41% decrease in fall 1994 to winter 1995 production for ten basic grains, with an anticipated 1995/96 harvest of just half of that. Four million farmers may leave about 25 million acres unplanted because of these federal policies and the drought in northern Mexico {14}. As of October 1995, some 1.8 million family farmers had been forced to migrate since NAFTA went into effect on January 01 1994 {15}.

Faced with these grim statistics and a two-week grain supply (minimal food security requires a three-month supply, according to the United Nations), on April 10 1996, President Ernesto Zedillo launched a program to foment corn production. If the program is successful, Mexico's family farmers - long dismissed by "free" trade economists as inefficient - will ensure at least minimal food security through September 1997 {16}.

Tightening the Belt to Pay the Debt

Falling post-devaluation wages and rising unemployment have made it difficult for many Mexicans to afford to eat. The government estimates that about 2.8 million Mexicans lost their jobs during the first 22 months of NAFTA {17}.

Subsidies of basic foodstuffs were among the public expenditures slashed to achieve macro-economic objectives stipulated in the February 1995 US-Mexico loan agreement and in the loan Letter of Intent with the IMF {18}. (The loan agreements were intended to "stabilize" the Mexican economy in order to regain the confidence of investors whose capital flight contributed to the peso crash.)

By October 1995, the estimated monthly cost of feeding a family of five was US$340, while the legal minimum monthly wage was US$90 {19}. And yet, that December, the Mexican government announced that it was discussing how to phase out the subsidy for corn tortillas, the basic food for most Mexicans. Eliminating the subsidy would at least double the price of tortillas. {20}

The minimum wage now buys forty percednt of what it did in 1982, when SAPs were first imposed. On April 01 1996, the government increased subsidized milk prices fifty percent and tortilla prices 27 percent in Mexico City, both of which outstripped the twelve percent increase that raises the minimum wage to $3 per day. A 1996 inflation rate of thirty percent is further eroding every Mexican's buying power {21}.

Per capita consumption of corn, wheat, fruit and vegetables has dropped by 29% during the past six years {22}. According to Mexico's National Nutrition Institute, sixteen percent of Mexican children and eighty percent of all Chiapans are malnourished. Already, eighty children under the age of one year die each day of malnutrition {23}. If current "free" trade agricultural policies continue, these figures are very likely to increase dramatically {24}. Food security in Mexico is in grave jeopardy.

7 Cynthia Hewitt de Alcantara, "Economic Restructuring and Rural Subsistence in Mexico: Maize and the Crisis of the 1980s", United Nations Research Institute for Social Development Discussion Paper 31 (January 1992).